Catastrophic Risk: Investing and Business Implications
Musings on Markets
by Aswath Damodaran
3M ago
    In the context of valuing companies, and sharing those valuations, I do get suggestions from readers on companies that I should value next. While I don't have the time or the bandwidth to value all of the suggested companies, a reader from Iceland, a couple of weeks ago, made a suggestion on a company to value that I found intriguing. He suggested Blue Lagoon, a well-regarded Icelandic Spa with a history of profitability, that was finding its existence under threat, as a result of volcanic activity in Southwest Iceland. In another story that made the rounds in recent weeks ..read more
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The Seven Samurai: How Big Tech Rescued the Market in 2023!
Musings on Markets
by Aswath Damodaran
3M ago
I was planning to finish my last two data updates for 2024, but decided to take a break and look at the seven stocks (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla) which carried the market in 2023. While I will use the "Magnificent Seven" moniker attached by these companies by investors and the media, my preference would have been to call them the Seven Samurai. After all, like their namesakes in that legendary Kurosawa movie, who saved a village and its inhabitants from destruction, these seven stocks saved investors from having back-to-back disastrous years in the stock market ..read more
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Data Update 5 for 2024: Profitability, Returns and Value Creation (Destruction)!
Musings on Markets
by Aswath Damodaran
4M ago
In my last three posts, I looked at the macro (equity risk premiums, default spreads, risk free rates) and micro (company risk measures) that feed into the expected returns we demand on investments, and argued that these expected returns become hurdle rates for businesses, in the form of costs of equity and capital. Since businesses invest that capital in their operations, generally, and in individual projects (or assets), specifically, the big question is whether they generate enough in profits to meet these hurdle rate requirements. In this post, I start by looking at the end game for busine ..read more
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Data Update 4 for 2024: Danger and Opportunity - Bringing Risk into the Equation!
Musings on Markets
by Aswath Damodaran
4M ago
In my last data updates for this year, I looked first at how equity markets rebounded in 2023, driven by a stronger-than-expected economy and inflation coming down, and then at how interest rates mirrored this rebound. In this post, I look at risk, a central theme in finance and investing, but one that is surprisingly misunderstood and misconstrued. In particular, there are wide variations in how risk is measured, and once measured, across companies and countries, and those variations can lead to differences in expected returns and hurdle rates, central to both corporate finance and investing ..read more
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Data Update 3 for 2024: Interest Rates in 2023 - A Rule-breaking Year!
Musings on Markets
by Aswath Damodaran
4M ago
In my last post, I looked at equities in 2023, and argued that while they did well during 2023, the bounce back were uneven, with a few big winning companies and sectors, and a significant number of companies not partaking in the recovery. In this post, I look at interest rates, both in the government and corporate markets, and note that while there was little change in levels, especially at the long end of the maturity spectrum, that lack of change called into question conventional market wisdom about interest rates, and in particular, the notions that the Fed sets interest rates and that an ..read more
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Data Update 2 for 2024: A Stock Comeback - The Low Expectations Game!
Musings on Markets
by Aswath Damodaran
4M ago
Heading into 2023, US equities looked like they were heading into a sea of troubles, with inflation out of control and a recession on the horizon. While stocks had their ups and downs during the year, they ended the year strong, and recouped, at least in the aggregate, most of the losses from 2022. That positive result notwithstanding, the recovery was uneven, with a big chunk of the increase in market capitalization coming from seven companies (Facebook, Amazon, Apple, Microsoft, Alphabet, NVidia and Tesla) and wide divergences in performance across stocks, in performance. As we move into 202 ..read more
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The School Bell Rings: Time for Class!
Musings on Markets
by Aswath Damodaran
4M ago
Continuing an annual ritual of long standing, ahead of starting my spring teaching at NYU starting in a couple of weeks, I would like to invite you, if you are interested, to come along for the ride. I know! I know! Most of you are not enrolled at NYU, paying nosebleed prices, and that is prerequisite to be in the classroom, but thanks to technology and a loose reading of the rules that constrain me, you can get a close approximation of the classroom experience, wherever you are in the world, with broadband being your only constraint. My Teaching Journey    I am a product of my life ..read more
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The Difference Makers: Key Person(s) Valuation
Musings on Markets
by Aswath Damodaran
6M ago
    Can one person make a difference to the value of a business? Of course, and with small businesses, especially those built around personal services (a doctor or plumber’s practice), it is part of the valuation process, where the key person is valued or at least priced and incorporated into valuation. While that effect tends to fade as businesses get larger, the tumult at Open AI, where the board dismissed Sam Altman as CEO, and then faced with an enterprise-wide meltdown, as capital providers and employees threatened to quit, illustrates that even at larger entities, a person ..read more
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Tesla in November 2023 : Story twists and turns, with value consequences!
Musings on Markets
by Aswath Damodaran
7M ago
I was planning to start this post by telling you that Tesla was back in the news, but that would be misleading, since Tesla never leaves the news. Some of that attention comes from the company's products and innovations, but much of it comes from having Elon Musk as a CEO, a man who makes himself the center of every news cycle. That attention has worked in the company's favor over much of its lifetime, as it has gone from a start-up to one of the largest market cap companies in the world, disrupting multiple businesses in the process. At regular intervals, though, the company steps on its own ..read more
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Good Intentions, Perverse Outcomes: The Impact of Impact Investing!
Musings on Markets
by Aswath Damodaran
8M ago
     I have made no secret of my disdain for ESG, an over-hyped and over-sold acronym, that has been a gravy train for a whole host of players, including fund managers, consultants and academics. In response, I have been told that the problem is not with the idea of ESG, but in its measurement and application, and that impact investing is the solution to both market and society's problems. Impact investing, of course, is investing in businesses and assets based on the expectation of not just earning financial returns, but also creating positive change in society.   &nb ..read more
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